May 2025 Market Outlook
April has been a dramatic month for global investors, marked by heightened uncertainty in trade policy directions. This has led to sharp market pullbacks and increased risk aversion across various asset classes. Despite the turbulence, global indices ended the month nearly unchanged from where they began, highlighting the unpredictable nature of the current market environment.
These rapid policy shifts sparked one of the most dramatic market swings of the year. Equities initially plunged but rebounded strongly later in the month. The S&P 500 had dropped as much as 11.83%, while the Nasdaq was down 11.20% for the month of April. Investors who panicked and exited during the downturn may have ended the month with losses, even though both indices ultimately recovered and closed of the month of April in the positive territory. The S&P 500 gained 2.80%, and the Nasdaq rose 1.52%. As of 1 May, the S&P 500, for eight days straight, ended the day positively. It’s a run which saw the index rose 8.6%, its longest winning streak since August 2024.
The bond market also experienced significant volatility. The yield on the U.S. 10-year Treasury started the month at 4.184%, dropped sharply to 3.86% in the first week, then surged to 4.386% by April 11 as the market priced in a higher likelihood of interest rate cuts. By month-end, yields had settled at 4.135%, just slightly below where they began.
During the FOMC May meeting, the Federal Reserve opted to keep interest rates unchanged. Despite ongoing uncertainty, Fed Chair, Jerome Powell, expressed confidence in the U.S. economy but cautioned that risks of higher inflation and rising unemployment have increased, adding to the murky economic outlook. The Fed’s policy rate has remained steady since December 2024, as officials grapple with assessing the impact of President Trump’s tariff policies.
Looking ahead, U.S. trade and economic policies are likely to remain key drivers of market volatility. The recent tariff truce between the U.S. and China marks a significant de-escalation in trade tensions, though it remains uncertain whether a lasting agreement will be achieved as negotiations progresses.
For investors, recent market turbulence reinforces a core principle: diversification is more effective than overconcentration in any single market. Spreading exposure across multiple asset classes helps build a more resilient portfolio in the face of uncertainty.
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